Talking Points:

- USD/CAD Carves Bearish Series, Eyes Monthly-Low as Canada CPI Exceeds Forecast.

- GBP/USD Resilience Fizzles, Range Bound Prices to Persist Attention Turns Back to Brexit Deal.

DailyFX TableUSD/CAD

USD/CAD faces a greater risk of giving back the advance from the December-low (1.2624) as it carves a fresh series of lower highs & lows.

The 2.1% reading for the Consumer Price Index (CPI) accompanied by the 0.8% expansion in Retail Sales may continue to boost the appeal of the Canadian dollar as it encourage the Bank of Canada (BoC) to further normalize monetary policy in 2018, and Governor Stephen Poloz and Co. may emphasize ‘higher interest rates will likely be required over time’ as the economy appears to be operating close to full capacity.

Keep in mind, the BoC may stick to the sidelines at the next meeting on January 17 as the ‘Governing Council will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates,’ but the central bank may stay on its current path of implementing two rate-hikes per year as ‘inflation has been slightly higher than anticipated and will continue to be boosted in the short term by temporary factors.’ With that said, USD/CAD may exhibit a more bearish behavior over the coming months, with the pair at risk of extending the decline from earlier this year as the BoC alters the outlook for monetary policy.

USD/CAD Daily Chart

USD/CAD Daily Chart
  • USD/CAD sits at channel support following the string of failed attempts to test the 1.2980 (61.8% retracement) to 1.3030 (50% expansion) region, with a move below the 1.2720 (38.2% retracement) to 1.2770 (38.2% expansion) region raising the risk for a run at the monthly-low (1.2624).
  • Need to see a break/close below the 1.2620 (50% retracement) hurdle to open up the downside targets, with the first region of interest coming in around 1.2440 (23.6% expansion) to 1.2510 (78.6% retracement) followed by 1.2350 (38.2% expansion).
GBP/USD

The near-term rebound in GBP/USD quickly fades, with the pair at risk for further losses as it continues to track the descending channel from earlier this month.

Bullish signals appeared to be taking shape as both price and the Relative Strength Index (RSI) threaten the downward trends from the beginning of December, but the fresh series of lower highs & lows raises the risk for a larger pullback as the pound-dollar exchange rate appears to be on course to test the monthly-low (1.3302).

Keep in mind, U.K. Prime Minister Therese May is in Poland to meet with Mateusz Morawiecki, and future implications for phase 2 of the Brexit deal may ultimately influence the near-term outlook for GBP/USD especially as the Bank of England (BoE) endorses a wait-and-see approach for monetary policy. Want to learn more about popular trading indicators and tools such as the RSI? Download and review the FREE DailyFX Advanced trading guides!

GBP/USD Daily Chart

GBP/USD Daily Chart
  • The 1.3280 (23.6% expansion) to 1.3300 (100% expansion) region sits on the radar following the failed attempt to break out of the downward trending channel, with GBP/USD at risk of giving back the advance from the November-low (1.3039) as the pair struggles to climb back above the 1.3440 (38.2% expansion) to 1.3460 (50% retracement).
  • A break/close below the former-resistance zone opens up the next downside target around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement) followed by the November-low (1.3039).
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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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